Sources have confirmed to us that Silicon Knights has apparently decided to scale back operations, and as part of this decision the company has let some of its employees go. The decision was made to allow the company to move to a core group focusing all of its efforts on future opportunities.

The interesting part of this is that the company claims that the rumors regarding the developers’ reliance on Nintendo are false. Nintendo is said to have dropped the developer following an unsuccessful bid to prevail in its lawsuit against Epic.

Despite all of the bad news, it is possible that an Eternal Darkness sequel might actually be in the pipeline as no one bothered to deny that this was the case. No numbers have been confirmed as to how many employees were let go, but we hear that it was not a large number.

After a five year court battle over Unreal Engine 3, a judge has awarded Epic Games $4.45 Million. Sources have told the Escapist magazine that Human developer Silicon Knights will have to pay Epic Games $4.45 million in damages.

Silicon Knights hoped to make $54 million from suing Epic. Instead it owes them a lot of cash. The ruling followed two recent case milestones, neither of which had foreshadowed much hope for Silicon Knights.

Last week, the court ruled that due to an invalid expert testimony, no claim against Epic could be awarded more than a dollar in recompense. All claims of fraud, negligent misrepresentation, unfair competition, and unfair and deceptive trade practices previously levied were dismissed outright.

Epic remained tight-lipped regarding the specifics of its counterclaims since the announcement of their filing in 2007. Most of the claims centered around copyright infringement of the Unreal Engine 3's code.

Silicon Knights' initial lawsuit depended on the fact that Epic had misrepresented the engine, forcing it's developers to build a better one from scratch. Epic claimed that during this time, Silicon Knights had full access to the Unreal Engine 3's code, and may have infringed upon it while reconstructing the core of Too Human. It looks like the Judge believed them.